Profit-making companies must be allowed to open their own free schools if the Coalition wants to see greater improvements in the education system, according to employers’ organisation the CBI.

Currently, only parents, charities, teachers and community groups are allowed to open free schools, which can then sub-contract for-profit organisations to run them.

But the CBI has recommended that the expertise that exists in the private sector should be “embraced” fully to improve standards.

James Fothergill, the CBI’s head of education and skills, said the Government must open up those who can create the new institutions.

“The Government should broaden the range of people who can set up such a school,” he said. “Rather than establishing a trust, which then employs a sub-contracted company to act as the school’s operator, it would be a better use of public money if they were able to run the schools.

“The Department (for Education) would still decide whether a group should be allowed to open a school under the same criteria as already exists.

“But the principle underpinning for-profit companies being able to run a school is that the money would be allocated to the company, which would then have an incentive to spend the money in the most efficient way.”

However, the report has been condemned by teachers’ leaders, who said the move will pave the way for companies to pay their shareholders rather than spend the money on children’s education.

Mary Bousted, general secretary of teaching union ATL, said: ”(Education Secretary) Michael Gove may talk about giving parents and teachers more power, but it’s just window dressing as it has always been the Conservatives’ intention to allow private companies to run schools.

“This Government is overturning the 1944 Education Act and the whole relationship of the state and schools. Private companies exist to make a profit; they do not go into running schools for the good of education or children’s well-being.”

The CBI called on the Government to set out a clear strategy to show how schools and local authorities should work with private companies. Meanwhile, it stated that schools should make career guidance an “integral” part of the curriculum from Year 7 and is calling for increased take-up of maths and science.

REPORT BREAKDOWN - Links in chain

The CBI’s report has called for the Government to carry on where the previous Labour administration left off, and establish chains of accredited groups of schools.

The organisation said the chains of federations of schools could be controlled by a single governing body, which could be another school, a business or a third sector body.

The report states: “There is limited capacity to expand good schools and to close down underperforming ones. As a result good schools are oversubscribed, and places are rationed. This reduces choice available to parents.”